One of LCM’s key areas of focus since its IPO has been the origination and execution of corporate portfolio transactions. The recent announcement of a portfolio funding partnership with a major aviation company, in which LCM will finance 38 worldwide disputes and contractual claims arising from the operations of the company for an initial 5-year rolling period, underscores the funder’s commitment to its corporate portfolio funding strategy.
The transaction was led by Executive Vice Chairman Nick Rowles-Davies, who leads LCM’s EMEA team, comprised of some of the most experienced practitioners in the industry at corporate portfolio funding. Thanks to Rowles-Davies’ leadership and the team’s expertise, this is the second corporate portfolio transaction funded by LCM in past 12 months, and the first originating from the global cooperation agreement with a leading international law firm announced in March.
The first of LCM’s portfolio transactions was announced in October 2018, and was in the building and construction sector. LCM remains one of only a handful of funders to have completed such a transaction type. The funder also currently has eight other portfolio deals in the pipeline. Perhaps no better evidence could be proffered of litigation funding’s growing awareness and understanding amongst corporate clients – at least within certain capital-intensive industries.
As Rowles-Davies puts it: “Everyone has heard of ‘litigation finance,’ but they don’t necessarily understand what it entails. To many, it still means bringing big claims against corporates and they don’t appreciate that it is a form of financing that can support a company by monetizing its legal assets, removing the risk of litigation, increasing EBITDA and keeping costs off the balance sheet. Some sectors are certainly more aware of the benefits available through the use of litigation funding and these are typically businesses in sectors that are high-volume, low-margin; for example, aviation, construction and outsourcing.”
By financing multiple claims at once, funders like LCM reduce their risk profile, which results in a more attractive pricing structure for the client than when cases are funded on a one-off basis (one-off cases carry binary risk, therefore the cost of capital is higher). On this latest transaction, LCM has maintained the optionality to extend the number of cases it will finance, as well as the cumulative size of the financing available.
“When we are structuring corporate portfolios for our clients, we look to be as flexible as possible and try to directly address the problem that they are looking to solve by providing a bespoke solution,” Rowles-Davies adds. “This provides businesses with complete optionality as to how they fund their disputes, moving to a position of using funding out of choice, rather than necessity. This is totally different from a single case situation where often a distressed and impecunious party is being funded.”
London-based law firm Clyde & Co. helped arrange the funding partnership between LCM and the unnamed airline. This type of arrangement underscores the win-win nature of a partnership between a dedicated funder and an individual law firm. According to Rowles-Davies, this type of partnership “is not that common, but I suspect we will see more arrangements like it as funding becomes more widely used.”
Rowles-Davies is quick to point out, however, that LCM has relationships with multiple law firms, and that agreements such as its partnership with Clyde & Co. don’t guarantee exclusivity. “This is about picking your partners carefully – we want to work with people who understand how LCM operates and what we’re looking for, and it takes time to develop that understanding.”
